Huntington Ingalls Industries Inc (HII)

Conclusion

Huntington Ingalls Industries builds, overhauls and repairs military ships for the U.S. Navy and Coast Guard, including aircraft carriers, submarines and amphibious assault ships, and also provides mission technology services. At the price of 304.36 USD on 2026-11-09, the market capitalisation is 12.0 billion USD.

The verdict is overvalued. The price sits above the fair value band of 178.00 to 267.00 USD, with a midpoint of 222.50 USD and a margin of safety of -26.9%. Price-to-earnings is 16.36 against a ten-year median of 15.48, a premium of 5.7%. EV/EBITDA is 13.12 against a median of 10.29, a premium of 27.4%, and price-to-free-cash-flow is 31.90 against a median of 18.40, a premium of 73.4%. The DCF gives 157.07 USD per share at a discount rate of 8.9%, and the fair value from historical multiples is 287.94 USD. The reverse DCF implies revenue growth of 13.79% a year, against revenue growth of 5.93% a year over five years.

What supports the case is a strong balance sheet, with interest coverage of 10.06 and a Piotroski score of 9 out of 9, and a record of eight earnings beats out of eight. What breaks it is the price relative to cash flow: free cash flow conversion over the last twelve months is 51.3%, and the premium on price-to-free-cash-flow is 73.4%. Operating margin of 5.68% also sits below its ten-year median of 7.50%.

Financial health

Financial strength is green, held up by interest coverage of 10.06, a current ratio of 1.26 and a debt-to-equity ratio of 0.53. The quick ratio is 0.36, and net debt to EBITDA is 2.29 on a trailing twelve-month basis, which the scorecard marks as a point to watch. The Altman Z-score is 2.96, in the grey zone, a zone where the model gives no clear verdict. The Altman model was designed for manufacturers, and this company manufactures ships, so the result is a reasonable guide. Insolvency risk is low, about 0.8% by the estimate of the Ohlson model over one to two years, based on figures as of 2025-12-31.

Earnings quality

Earnings quality is green, with a Piotroski score of 9 out of 9 and eight earnings beats in eight quarters, averaging a surprise of 15.9%. Free cash flow conversion is 51.3% over the last twelve months but 81.4% over five years, so recent cash generation has lagged reported earnings. The accrual ratio is -4.75%, which means cash earnings are running ahead of accounting earnings. Stock-based compensation is 0.43% of revenue, and free cash flow after it is 318 million USD. The share count has fallen at a compound rate of 0.65% a year over five years, which points to buybacks. The Beneish M-score is not available. Estimate revisions are positive for the current year, with a 5.94% rise over 90 days and no downgrades in the last 30 days. For the next year, the 90-day revision is -1.41%, with one downgrade in the last 30 days.

Profitability

Profitability is yellow. Gross margin is 12.88% against a ten-year median of 15.79%, operating margin is 5.68% against 7.50%, and net margin is 5.42% against 6.06%. Operating margin has a stability reading of 0.35. Return on invested capital is 9.85% against a weighted cost of capital of 7.9%, leaving a ROIC minus WACC of 1.95%, which is neutral. The five-year median ROIC is 9.22%. Return on equity is 13.35%, but leverage inflates it. The DuPont split for 2025 shows a net margin of 4.85%, an asset turnover of 0.98x and an equity multiplier of 2.51x, so most of the equity return comes from borrowing rather than from margins.

Growth

Growth is yellow. Revenue has compounded at 5.35% over three years, 5.93% over five years and 5.93% over ten years, and it has grown in all ten of the last ten years. Earnings per share are weaker, with a compound rate of 2.16% over three years, a fall of 2.13% a year over five years and growth of 6.29% over ten years. Free cash flow per share compounded at 18.9% over three years, 2.08% over five years and 4.31% over ten years. Analysts expect earnings per share growth of 3.95% in the next year.

Valuation

Valuation is red. Price-to-earnings is 16.36 against a ten-year median of 15.48, a premium of 5.7%. EV/EBITDA is 13.12 against 10.29, a premium of 27.4%. Price-to-free-cash-flow is 31.90 against 18.40, a premium of 73.4%. Price-to-sales is 0.89 against 1.04, a discount of 14.8%, and price-to-book is 2.18 against 3.25, a discount of 32.8%. The DCF gives 157.07 USD per share, using a discount rate of 8.9% and an assumed long-term growth rate of 2.5%. The fair value from historical multiples is 287.94 USD. The reverse DCF implies growth of 13.79% a year, against revenue growth of 5.93% and free cash flow per share growth of 2.08% over five years. The fair value band is a rough estimate built on fixed assumptions, not a price target. The dividend yield is 1.81%, with a forward yield of 1.95%, and the payout is 57.7% of free cash flow.

Risks

The main risk is that cash generation stays below reported earnings. A free cash flow conversion of 51.3% over the last twelve months, against 81.4% over five years, would mean the premium on free cash flow keeps eroding returns for shareholders. Operating margin of 5.68%, below its ten-year median, leaves little room for cost overruns on fixed-price contracts. Net debt to EBITDA of 2.29 would tighten if earnings fell, and the Altman Z-score of 2.96 in the grey zone shows no clear margin of safety. The Beneish M-score is not available, so the risk of earnings manipulation cannot be checked here. The analysis has no debt maturity schedule and no revenue by segment, so the timing of refinancing and the mix of programme exposure cannot be assessed.